The Yield on a One-Year Bond Is Currently 4% and the Expected

question 26

Multiple Choice

The yield on a one-year bond is currently 4% and the expected yield on one-year bonds for the next two years is 5% and 6%. If the liquidity premium is 0.5%, what is the yield on a bond with two years to maturity?

• A) 4.5%
• B) 5%
• C) 5.5%
• D) 6%

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